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Ankle deep in methodology

On his blog Free Advice Robert Murphy has written a number of posts on thinking like an economist, or, as economists like to call it, methodology. (There are several posts from this back to September 3.)  The post I linked to is an excerpt from Ludwig von Mises in Human Action. Mises wrote, "In the concept of money all the theorems of monetary theory are already implied."  Er, no. I understand where Mises was coming from, addressing problems raised by Immanuel Kant in the Critique of Pure Reason and addressed by Kant and subsequent generations of German-language philosophers he influenced, but I don't think Mises's approach is of much help to a practicing economist trying to make the world a little better.

Mises compares economic reasoning to geometry, declaring "All geometrical theorems are already implied in the axioms." But there are multiple axioms, leading to quite different results depending on which ones you adopt. (Given a straight line and a point, can you draw more than one straight line through the point parallel to the first line? Under some geometrical systems, yes, under others, no.) Why are some axioms more valuable than others? Because they help us confront the world as we find it. Economists are emphatically not simply working out a system of a priori reasoning. We are going back and forth between abstract reasoning and the confusion of the world around us to develop patterns of explanation that are useful for our actions. The Austrians in particular distrust reasoning carried out for its own sake, or even for the sake of addressing pressing problems, from premises that seem ludicrous (infinitely lived agents, perfect information, a central auctioneer for the economy, "banks" modeled as having no shareholders' capital, etc.).

Mises's approach also runs the danger of leaving out the people from the theory-building. It's not knowledge unless somebody knows it. The theorems are not just out there waiting patiently to be discovered. As far as we are concerned they do not exist until somebody has developed them, and once developed, they cease to exist if not transmitted to other people. There is not one ("the") concept of money, there are multiple concepts and there are multiple possible monetary theories, which helps explain why different schools of economic thought have such different ideas about money and monetary policy. It is notable to me that, as I remarked in a post about Mises's 1912 Theory of Money and Credit, he does not cover the  great variety of monetary arrangements that existed in his day, some of which have since become extinct. He limits himself to those existing within a day's train ride from Vienna.

In the practice of economics there is a back-and-forth between the world as we experience it and the ideas we use trying to make sense of it. Money is a field of economics in which it is particularly the case that without the experience of various kinds of monetary arrangements it is hard to imagine that somebody would ever have thought of them. The theory has come after the experience, both chronologically and logically.

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